Oregon’s Silo Wellness Buys Dyscovry Science To Aid Psychedelic Retreats
Silo Wellness (CSE: SILO) (OTCQB: SILFF) is acquiring 100% of Dyscovry Science Ltd. in exchange for 49% of the issued outstanding securities of Silo and a chair on its board.
Silo will be giving up 12,762,325 shares priced at roughly two cents a share or approximately $255,246. The company also said it would pay approximately C$120,000 of Dyscovry’s founder’s debt in 12 equal monthly payments.
Dyscovry is a Toronto-based biotechnology company focused on biosynthetic manufacturing of psilocybin and its derivatives to treat irritable bowel syndrome.
With its research collaboration with Canadian federal government research laboratories, Dyscovry said that it intends to develop a biotechnological process for the production of psilocybin and its potentially novel molecule derivatives.
“The Dyscovry transaction has been highly anticipated by our shareholder base and a long time coming,” said Silo founder and CEO Mike Arnold.
Silo previously announced in May a letter of intent to acquire Dyscovry.
“As I have gotten to know the Dyscovry team over the last year, I have seen potential synergies far beyond what is within the four corners of the Dyscovry portfolio,” said Arnold. “I am thrilled to bring our networks together to add value to what we have built in Jamaica and intend to build in our home state of Oregon.”
The deal comes as Oregon is on the verge of deciding rules and regulations for the first legal medical psilocybin program in the country.
Silo Wellness said it hopes to ultimately create a combined entity focused on pharmaceutical API revenue along with revenue from the CPG market via Marley One and through “psychedelic healing now” via the psychedelic retreat model.
Dyscovry said in May that its vision has been to create a pharmaceutical platform and exit strategy similar to what GW Pharma did with their cannabinoid manufacturing and clinical product.
Dyscovry also said that the transaction affirms Silo’s commitment to the psychedelic pharmaceutical space and is expected to add pharmaceutical R&D capabilities to Silo’s patent-pending metered-dosing formulations for psilocybin, DMT, mescaline, and 5-MeO-DMT, and its psychedelic retreat expertise to “help unlock the value of its strategic portfolio.”
“We are joining two teams that share a passion and vision for developing differentiated psychedelic healing therapies that advance science and transform the lives of patients,” said Dyscovry’s founder and president Brad Dottin. “I look forward to all that we intend to accomplish together as a combined organization.”
Media Outreach
In addition to the acquisition, Silo also alerted shareholders that it would be hiring Bolt Media to provide social media support. It will pay Bolt $8,833 a month for the service.
In addition to the social media work, Silo has hired Lifewater Media to the tune of $60,000 to introduce the company to the investment community. That money will go to a newsletter, advertising, copywriting, and design fees. Part of that money will be used to get attention for the psychedelic vacations in Jamaica.
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New Jersey’s Marijuana Workplace Protections Guidelines Are Raising Legal Concerns, Experts Say
“Even the most well-intentioned employees and employers might get caught up in this.”
By Sophie Nieto-Muñoz, New Jersey Monitor
The workplace guidelines released by the state agency overseeing cannabis has employers dazed and confused over what they can do to discipline a worker who might be high on the job.
Cannabis law experts and employment attorneys called the rules and their rollout vague and baffling, and said the suggestions outlined are impractical to implement and keep businesses in a “state of limbo.”
“I see a lot of risk from both the employer and the employees’ side that’s a little concerning,” said Sean Sanders, a Pine Brook-based employment attorney at Frier Levitt.
Earlier this month, the Cannabis Regulatory Commission issued interim guidance while it continues to develop more permanent regulations to certify workplace impairment experts, known as WIREs, regulations that are required by the marijuana legalization law. Since legalization, employees can no longer be terminated solely because of a drug test positive for marijuana.
The interim guidelines allow employers to use an observation report form issued by the agency, which, when used in conjunction with a positive drug test for marijuana, could be sufficient for firing. Employers can use a third-party contractor to assist with impairment observations, or another staff member who is sufficiently trained to catch the signs of impairment.
Dianna Houenou, chair of the Cannabis Regulatory Commission, said the new guidelines likely capture what many employers are already doing and have been doing since before legalization. The commission does not receive the form or dictate what employers should do after observing impairment, and companies adhere to their own personnel policies on what to do with the forms next.
“We want to make sure we’re striking a balance between employers’ rights and employees’ rights to due process, but the guidance doesn’t actually do anything new,” she said. “It’s actually the process that many employers are using to identify any impairment among employees.”
But lawyers and business leaders who have been awaiting the guidelines were unimpressed and frustrated with what the commission released—nearly five months after the industry’s launch and nearly two years since voters approved cannabis legalization.
“The concern is, how do we do this? That’s the biggest question, and I wish the CRC guidance would give us a little bit more, no pun intended, guidance,” said Tracy Armstrong, an employment lawyer at Wilentz, Goldman & Spitzer, who serves on the New Jersey State Bar Association’s cannabis law committee.
Armstrong’s biggest qualm is that the guidelines lack definitions and explanations for how employers can implement these regulations in the real world.
A client called her last week asking what kind of third-party contractor they can hire to keep an eye on staff that could be high on the job. She said she didn’t know where to begin to try to find one because the guidance isn’t that specific.
She suggested the client look at taking impairment training classes so a staffer can be trained — but she’s not even completely sure what would fall under the Cannabis Regulatory Commission’s standard of sufficiently qualified.
“How do you say that this employee has to be ‘sufficiently trained and qualified,’ and not even tell us what that means? To me, that is not guidance. That is not helpful,” she said.
Sanders represents hospitals, pharmacies, and doctor’s offices, which all fall under the safety sector and need to prioritize what’s best for the patient. He said he’s advising his clients to be wary when filling out the form.
The form lists dozens of signs of physical and behavioral impairment: red, swollen eyes; sniffling nose; heavy breathing; a marijuana odor; rambling speech; looking confused; excessive yawning, and more. But some of these signs can also be due to allergies or medication, or even someone having a bad day.
“You don’t want to be targeting your employees who look depressed, and certainly you don’t want to be documenting it,” he said. “That brings up a whole ‘nother can of worms with the Law Against Discrimination.”
Critics also questioned the effectiveness of having a third-party contractor come in to observe someone potentially under the influence. Unless a company can afford to have someone on staff at all times, employers would have to call someone who may not arrive immediately, and the effects of cannabis may only last a few hours.
And employers could still be open to lawsuits—while the Cannabis Regulatory Commission suggests an observation form in conjunction with a positive THC test may be enough to terminate someone, the attorneys noted that cannabinoids can be present in someone’s system for four weeks.
“Even the most well-intentioned employees and employers might get caught up in this,” Sanders said.
When asked how employers can implement third-party contractors in their workplace, Houenou conceded the “answer to that question hasn’t been settled yet, but it’s a valid consideration.”
She also didn’t say why the commission took months to release these interim guidelines or what the delay is on WIREs certification. She said those regulations are still being developed, and the commission is being careful to “ensure we’re doing this right.”
Sanders said until the WIREs training is developed by New Jersey State Police, he sees employers taking increased risks in executing the commission’s guidance and potentially weighing which law to comply with—anti-discrimination or employment rights statutes—since they could contradict each other.
“It’s growing pains that typically happen when new legislation comes out. It’s just that this one in particular tends to affect every one employer in our state,” he said.
Armstrong pointed to legislation that could address some of the questions surrounding which industries can terminate workers for testing positive for cannabis and direct the State Police to review and approve standards for WIREs certification. The bill, A890, hasn’t been heard by a legislative committee and does not have a companion bill in the state Senate.
She said she believes that ultimately, the guidance will be resolved through legislation or case law as it’s tested by employers in the coming months.
“Do I have faith it’ll be resolved? Yes,” Armstong said. “Do I have faith it’ll be resolved quickly? Probably not.”
This story was first published by New Jersey Monitor.
Photo courtesy of Mike Latimer.
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Majority Of D.C. Voters Support Marijuana Legalization And Oppose Crackdown On Unregulated ‘Gifting’ Market, Poll Finds
Washington, D.C. voters strongly support marijuana legalization and oppose a crackdown on the cannabis “gifting” market that’s emerged in the absence of regulated sales, according to a new poll.
The survey, commissioned by the I-71 Committee and conducted by the firm brilliant corners Research & Strategies, found that 72 percent of likely voters back legalization, and 66 percent said they specifically support the implementation of the District’s cannabis reform law that was approved at the ballot in 2014.
That initiative legalized low-level possession, personal cultivation and gifting of cannabis for adults 21 and older. But D.C. has been barred from implementing a system of legal recreational sales under a congressional spending bill rider, enabling an unregulated market to proliferate with some businesses offering “free” marijuana as a gift when some purchases non-cannabis goods and services as a legal workaround.
Local lawmakers and regulators have voiced concerns about the gifting loophole, and several agencies recently formed a “Joint Cannabis Force” to inspect retailers and ensure compliance. However, the plan to start those inspections this month was delayed for unspecified reasons.
According to the new poll, 76 percent of respondents said that they’d prefer for the District to “reform current laws to create a more regulated market” that allows for sales, while 19 percent said that the local government should “shut down the gift economy marijuana market.”
The i-71 Committee describes itself as “a coalition of citizens, industry leaders and stakeholders who are committed to passing equitable, fair, and socially conscious cannabis legislation that prioritizes access for all.”
Respondents were also asked to rate their concerns about the potential consequences of a crackdown on gifting businesses. Eighty-four percent said they were concerned that enforcement action could put people of color at greater risk of legal repercussions, 70 percent said they worried it would penalize small businesses and 69 percent said they were concerned about increased gun violence, for example.
Notably, not only did 63 percent of likely voters say they oppose any attempts by the Council to crack down on the unregulated market but 64 percent said they’d also be less inclined to support a candidate who wants to shut down the businesses.
Still, while support for regulating cannabis commerce is strong in D.C., the survey also found that most voters think that councilmembers should be focusing more on other issues like reducing crime, promoting affordable housing and expanding access to health care. Asked to rank the importance of 12 different policy issues, respondents were least likely to say that regulating marijuana should be a priority.
“The key takeaway here is this: If the D.C. Council shuts down i-71 stores, it will push the cannabis industry back to the streets,” Terrence White, chairman of the i-71 Committee, said in a press release. “That will lead to more gun violence centered around cannabis sales in our city and lead to an increase in the number of non-violent drug offenses interfacing with law enforcement.”
“It’s also abundantly clear District voters do not want D.C. Councilmembers to act and punish our stores,” he said. “It’s not perfect right now, but punishment will only cause more problems, and we’re here to find solutions.”
The survey involved interviews with 610 likely voters in D.C. from September 6-12, with a +/-4 percentage point margin of error.
Meanwhile, D.C. lawmakers recently sent letters to House and Senate Appropriations Committees leadership, imploring them to remove the rider preventing local cannabis sales as part of Fiscal Year 2023 spending legislation.
“This is not simply an injustice, it is untenable. It is estimated that cannabis sales in the District exceed $600 million annually,” the lawmakers wrote. “A vast majority of these sales are unregulated because of the rider, complicating efforts to ensure consumer and public safety and jeopardizing the financial viability of legitimate medical cannabis businesses licensed to operate in the District.”
The House passed the relevant spending bill for FY 2023 in July, excluding the D.C. marijuana prohibition language. In the Senate, the legislation that’s currently on the table from the Democratic Appropriations Committee chairman also omits the rider, though partisan disagreements have prevented that chamber from acting on any of its spending bills so far this year.
Congress has until September 30, the end of the current fiscal year, to pass a final product. However, it’s expected that lawmakers will pass a short-term continuing resolution that maintains the status quo in the interim, as negotiations continue.
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President Joe Biden has faced criticism from reform advocates over his last two budget proposals that have included the rider, despite the fact that he’s voiced support for D.C. statehood and for letting states set their own marijuana policies without federal interference.
As Congress decides the fate of the rider, the D.C. Council has separately enacted what is effectively a workaround to the federal blockade, passing a bill in late June that allows people to self-certify themselves as patients under the District’s existing medical cannabis program, through with they can access dispensaries—without needing to get a recommendation from a doctor.
Mayor Muriel Bowser (D) signed the bill about a week after it passed, and in the first month of the new policy coming into effect, the District saw a surge in medical cannabis registrations.
Bowser, U.S. Rep. Eleanor Holmes Norton (D-DC) and other elected officials in the city have routinely criticized Congress for singling out the District and depriving it of the ability to do what a growing number of states have done without federal interference.
Norton told Marijuana Moment in a phone interview in July that she’s “fairly optimistic” that the rider will not be included in the final spending package. She added that the D.C. self-certification policy is an “effective workaround” until then.
The patient self-certification provision of the measure represents a significant expansion of another piece of legislation enacted into law this year that allows people 65 and older to self-certify for medical cannabis without a doctor’s recommendation.
Meanwhile, the mayor signed a bill in July that bans most workplaces from firing or otherwise punishing employees for marijuana use.
The reform is designed to build upon on a previous measure lawmakers approved to protect local government employees against workplace discrimination due to their use of medical cannabis.
While not directly related to the policy change, a D.C. administrative court recently reversed the termination of a government employee and medical cannabis patient who was fired after being suspected of intoxication on the job and subsequently tested positive for marijuana in late 2020. It also ordered the Office of Unified Communications (OUC) to reimburse the worker for all back pay and benefits.
Prohibitionist Group Presses Schumer To Bring House-Passed Marijuana Research Bill To A Vote
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Ten publicly traded multistate cannabis companies are carrying over half a billion dollars in federal tax debts, according to an analysis of financial filings by Green Market Report.
All told, multistate operators (MSOs) Acreage Holdings, Ascend Wellness, Ayr Wellness, Cresco Labs, Columbia Care, Curaleaf, Green Thumb Industries, TerrAscend, Trulieve and Verano Holdings owe the Internal Revenue Service an eye-popping $507,193,000, according to their second quarter financial reports.
Just two of the companies, Curaleaf and Verano, hold the bulk of the tax debt. Combined they owe the IRS $286 million.
Not only that, but if the companies were forced to fully pay their federal tax bills, only one of the 10 – Green Thumb Industries – would have more than 10 months worth of cash left with which to continue operating.
Verano Holdings would be financially underwater in a big way, with $161.4 million owed to the IRS compared with its $92.8 million cash on hand – meaning it owes 78% more in taxes than it had in cash at the end of its second quarter.
And it’s not clear when the companies plan on paying.
Creative Financing
Much, or perhaps all, of the tax debts have been deliberately not paid by companies so that the businesses can use the cash to fund operations or other plans, multiple sources said.
“Part of our capital allocation strategy is to lengthen our tax payment cadence,” Verano CEO George Archos explained to shareholders in an earnings call last month. “The strategy is not unique to Verano and has been utilized amongst other large U.S. companies. The cost of penalties and interest for this are significantly below the available cost of debt.”
Archos also noted that the company made a $37 million income tax payment in Q2, and that Verano has already paid $14 million in taxes for Q3.
“We continue to efficiently manage our income tax payable line and continue to manage as a cheap source of capital and generally keep about a trailing 12- to 18-month balance outstanding,” Archos said.
Still, the findings represent a troubling financial trend, first reported on by Seeking Alpha in May after first quarter financial reports were filed. And the trend likely extends to the broader industry, marijuana industry experts said, due to factors such as section 280E, the provision in the federal tax code which prohibits standard business deductions for those in cannabis.
That financial squeeze – which often results in a real-world tax rate of up 80%-90% for marijuana businesses and little to no profit – has led companies desperate for cash to undertake creative financing for expansion or even just to continue daily operations.
Delaying tax payments as a financing strategy can be a major risk in both the short and long term, several industry experts warned.
“I totally get it, and at the same time, I think it’s a very risky strategy, because it’s like Russian roulette,” said Roxane Peyser, a partner at Denver-based Fortis Law, who has worked with legal marijuana companies for over a decade.
“How are you going to justify that if you do wind up pulling the trigger that has the bullet in the chamber?”
Morgan Paxhia, co-founder at San Francisco-based Poseidon Asset Management, said he’s got “concerns” about the proliferation of that type of financing strategy, because he thinks it’s a high-wire act that’s tough to pull off.
“Intentionally now running up 280E tax debt as a means of conserving cash … ideally, that’s your last lever, or if you are going to pull that lever, it’s got to be very well-managed, tightly managed, there’s got to be a clear plan and a high probability of executing against it. Otherwise, I think you do get upside down,” Paxhia said.
Paxhia said the range of credit interests from private lenders these days is running about 12%-14% for those with good credit and upwards of 16%-20% for those whose credit is less than stellar. By contrast, IRS interest for deferred taxes is only 3% plus the prime short-term federal interest rate, which as of Monday was 6.25%, for a total of 9.25%.
That makes the IRS interest rates far cheaper than private capital, Paxhia pointed out.
“That’s why it’s interesting to some of these folks. Not that we’re justifying that,” Paxhia said.
The problem with the strategy of simply not paying the IRS is that the bill will eventually come due, perhaps as soon as next spring, although just when federal tax regulators will force the issue is the big question.
When that happens, the fallout could be catastrophic, said one tax attorney who requested anonymity due to his close work with several MSOs.
“They have to pay their taxes sooner or later,” the attorney said. “They’re going to fail, because so many of these managers are burying their heads in the sand, and what they should be doing is coming to grips with this and taking action. What they’re doing now is the worst of all possible worlds. They’re saying, ‘We admit we owe this tax, and we’re just not going to pay it.’
“That’s like alcoholic behavior. That’s like not opening your mail.”
The Numbers
The chart below provides details on each company’s financial health, according to Green Market Report’s analysis of the Q2 financial records. (Click on image to enlarge.)
Interminable juggling act?
Part of the problem, noted Peyser, is none of the MSO’s are actually profitable; every one of them posted multimillion-dollar cash flow losses in the second quarter, which at this point is an industry standard.
“It stems from the fact that, if you don’t have enough cash flow, you’re robbing Peter to pay Paul,” Peyser said. “So where do you get the money? How can you do that? What can you juggle?”
Not paying taxes is part of the juggling act, Peyser said. Which raises the question, how long will the IRS wait before the agency will decide it’s waited long enough?
That’s about as clear as mud, said Nick Richards, a former IRS tax attorney who is now a partner at Greenspoon Marder in Denver, but he added that the agency won’t wait forever.
What the IRS will most likely do, he said, is work with companies to get them onto payment plans or the like, akin to the deal struck by Statehouse Holdings this past summer.
“If you have the money to pay the taxes, your options are really to pay the tax,” Richards said. “The IRS isn’t going to take all your money. They’ll let you into a payment plan. That’s what they did for (Statehouse).”
But, the IRS also won’t let companies keep not pushing out their tax bills in perpetuity, he said, pointing to Curaleaf’s $125 million tax debt and its $187 million in the bank.
“(The IRS) is going to want them to get onto a payment plan” if Curaleaf or others aren’t already making some payments regularly, Richards said. “If Curaleaf can identify why it’s necessary for their ongoing business, then the IRS will cooperate with that, so long as it’s being used to generate income-producing assets.”
The longer-term question, Richards and others said, is whether the MSOs will eventually start turning a real profit. If they don’t, and the income tax bills keep piling up, the IRS may eventually lose patience.
“Year after year after year of losses becomes a problem in working with the IRS. The IRS is going to say, why save that business?” Richards said.
Paxhia noted that each company has to be evaluated individually, based on more than just cash flow or tax debts.
He pointed to Green Thumb Industries as a leader among MSOs for its low tax debt and high cash balance ratio, and said the company’s relatively cautious approach to expansion thus far is serving it well.
Even Verano, Paxhia said, could likely “sell off a ton of assets” if the company really needed more cash with which to pay its debts, so he doesn’t see the business as being in immediate danger, even with the relative lack of cash and its sky-high tax tab.
“It really kind of runs the gamut,” Paxhia said.
There are other factors that are worth taking into account, however, Paxhia and others noted, including rising federal interest rates and an upcoming hiring spree at the IRS, with a macro-level plan to increase audits and federal revenue.
There’s also an industry-wide sales slowdown that’s happening, following the COVID bump that much of the cannabis sector enjoyed for over a year.
Interest rates going up has already made capital even more scarce and expensive, and the new IRS agents could in part be targeted at cannabis companies, since the IRS knows the marijuana sector is a particularly lucrative one for them.
Which means, according to the relatively optimistic Paxhia, that high tax debts are “going to be a problem” for at least some of the major MSOs.
Managing Editor Jenel Stelton-Holtmeier contributed to this report.
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